Crude oil price sees biggest drop in two weeks on soft demand concern

Oil held the biggest drop in two weeks on a soft demand outlook in China, a stronger US dollar, and concerns the market may flip to oversupply.

West Texas Intermediate traded near $68 a barrel after falling more than 3% on Monday, with Brent closing below $72. China’s latest measures to kick-start its economy stopped short of direct stimulus, and inflation remains weak. A gauge of the dollar has hit a one-year high as investors adjust to Donald Trump’s victory, making commodities more expensive for most buyers.

Crude has traded in a narrow range since the middle of last month as traders tracked tensions in the Middle East, the race for the White House, and OPEC decisions on output. The outlook remains weak, with global supply expected to outpace demand next year. OPEC’s monthly market report, due for release later Tuesday, will shed light on the outlook for balances.

Timespreads point to a less tight market. Although most gauges are holding in a backwardated structure — with nearby contracts at a premium to longer-dated ones — spreads have been narrowing. The gap between WTI’s two nearest contracts was at 11 cents a barrel in backwardation, compared with more than 70 cents about a month ago.

After the analysis from the Organization of the Petroleum Exporting Countries, the US will release its short-term outlook on Wednesday, followed by the International Energy Agency’s view the day after. OPEC revised demand forecasts lower in its latest iteration.

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